Question

Kansas Company uses a job costing accounting system for its production costs. The company uses a predetermined overhead rate based on direct labor-hours to apply overhead to individual jobs. The company prepared an estimate of overhead costs at different volumes for the current year as follows.

Direct labor-hours		150,000				180,000				210,000
Variable overhead costs	$	900,000			$	1,080,000			$	1,260,000
Fixed overhead costs		630,000				630,000				630,000
Total overhead	$	1,530,000			$	1,710,000			$	1,890,000

The expected volume is 180,000 direct labor-hours for the entire year. The following information is for March, when Jobs 6023 and 6024 were completed.

Inventories, March 1
Materials and supplies	$	32,000
Work‐in‐process (Job 6023)	$	163,000
Finished goods	$	333,000
Purchases of materials and supplies
Materials	$	406,000
Supplies	$	46,000
Materials and supplies requisitioned for production
Job 6023	$	132,000
Job 6024		122,500
Job 6025		81,000
Supplies		19,000
	$	354,500

Factory direct labor-hours (DLH)
Job 6023	10,000 DLH
Job 6024	9,000 DLH
Job 6025	7,000 DLH

  

Labor costs
Direct labor wages (all hours @ $9)	$	234,000
Indirect labor wages (12,000 hours)		48,000
Supervisory salaries		111,000
Building occupancy costs (heat, light, depreciation, etc.)
Factory facilities	$	19,000
Sales and administrative offices		8,000
Factory equipment costs
Power	$	14,000
Repairs and maintenance		4,500
Other		8,500
	$	27,000

Required:

a. Compute the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.

(Note: Regardless of your answer to requirement [a], assume that the predetermined overhead rate is $8 per direct labor-hour. Use this amount in answering requirements [b] through [e].)

b. Compute the total cost of Job 6023 when it is finished.

c. How much of factory overhead cost was applied to Job 6025 during March?

d. What total amount of overhead was applied to jobs during March?

e. Compute actual factory overhead incurred during March.

f. At the end of the year, Kansas Company had the following account balances:

  

Overapplied overhead	$	4,000
Cost of goods sold		3,020,000
Work-in-process inventory		113,000
Finished goods inventory		254,000

  

Assuming that the overapplied overhead is not material, show the new account balances in the following table.

      

Answer 1

a) the predetermined overhead rate (combined fixed and variable) to be used to apply overhead to individual jobs during the year.

Computation of Predetermined Overhead rate

Particular	Amount
Total overhead	$1,710,000
Direct labor hours	180,000
Predetermined overhead rate	$9.50

b) Total cost of job 6023 when it is finished:

Computation of Total Cost

Particular	Amount
Work in progress, March 1	$163,000
Add: Materials requisitioned	$132,000
Add: Direct labor (10,000*$9)	$90,000
Add: Overhead cost (10,000*$8)	$80,000
Total cost of Job 6023	$465,000

c) How much of factory overhead cost was applied to Job 6025 during March:

Factory overhead cost applied to Job 6025

Particular	Amount
Direct labor hours of Job 6025	7000
* Predetermined overhead rate	$8
Factory overhead cost applied to Job 6025	$56,000

d) total amount of overhead was applied to jobs during March

Total overhead applied to Jobs durng March

Particular	Amount
Total Direct labor Hours (10,000+9,000+7,000)	26,000
* Predetermined overhead rate	$8
Factory overhead cost applied to job	$208,000

e)  actual factory overhead incurred during March.

Computation of actual factory overhead incurred

Particular	Amount
Supplies	$19,000
Indirect labor wages	$48,000
Supervisory salaries	$111,000
Factory facilities	$19,000
Factory equipment cost( $14,000+ $4,500 +$8,500)	$27,000
Total actual factory overhead incurred	$205,000

f)

New Account Balances

Particular	Amount
Overhead overapplied	0
Cost of goods sold ($3,020,000 - $4,000) *	$3,016,000
Work in progress inventory	$113,000
Finished goods inventory	$254,000

* as applied overhead is not material, it is adjusted with only cost of goods sold.